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ELECTIONS 2014

TAXES

Government U-turn on further tax cuts

Swedish political pundits on Wednesday were left pondering the ruling Moderate Party's announcement that it would not promise further income tax cuts in the run-up to next year's elections.

Government U-turn on further tax cuts

Party leader and Prime Minister Fredrik Reinfeldt said Tuesday that the there was little room for maneuver when it came to tax reform and that meant other policies had to be prioritized. In a tally by the Dagens Nyheter newspaper, his conservative coalition has slashed 139 billion kronor in total since taking power in 2006. Most of the cuts comes from the five subsequent income-tax reductions, meant in part to stimulate wage earners to increase consumption

A sixth income-tax cut was on the table, but the budget released by pony-tailed Finance Minister Anders Borg in the summer caused a ruckus on all sides of the political landscape, with observers scratching their heads.

“There is currently a deficit in the general government sector, largely due to the recession. If tax cuts or expenditure increases of 25 billion are implemented next year, consolidation measures are needed to meet the one percent target in the medium term,” National Institute of Economic Research (NIER) Head of Public Finance Analysis Erik Höglin told the Local in June.

“It is not impossible to enact reforms of 25 billion, but there will be a need to make savings later.”

Reinfeldt said on Tuesday that the space for reform was “tight”.

“That means it is important that our investments are targeted to, above all, education. That’s why I’m ready to wait to implement tax cuts,” Reinfeldt told the business daily Dagens Industri.

Politicos on Sveriges Radio (SR) spent Wednesday morning wondering if the Reinfeldt U-turn on tax cuts was an attempt to cash in on key focus areas of the opposition – for example, schools.

“Next year’s election campaign focus will be that we like the taxes where they are, but my opponents want to increase them heavily,” Reinfeldt added.

TT/The Local/at

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TAXES

Beskæftigelsesfradraget: What is Denmark’s employment allowance?

Denmark's government may soon announce changes to its tax reform plans, which will give all wage earners a bigger employment allowance. What is this and how will it affect foreigners' earnings?

Beskæftigelsesfradraget: What is Denmark's employment allowance?

What is the employment allowance? 

The Beskæftigelsesfradraget (from beskæftigelse, meaning employment, and fradrag, meaning rebate) was brought in by the centre-right Liberal Party back in 2004, the idea being that it would incentivise people to get off welfare and into a job.

Everyone whose employer pays Denmark’s 8 percent AM-bidrag, or arbejdsmarkedsbidrag, automatically receives beskæftigelsesfradraget. Unlike with some of Denmark’s tax rebates, there is no need to apply. The Danish Tax Agency simply exempts the first portion of your earnings from income taxes. 

In 2022, beskæftigelsesfradraget was set at 10.65 percent of income with a maximum rebate of 44,800 kroner. 

How did the government agree to change the employment allowance in its coalition deal? 

In Responsibility for Denmark, the coalition agreement between the Social Democrats, the Liberals and the Moderate Party, the new government said it would set aside 5 billion kroner for tax reforms.

Of this, 4 billion kroner was earmarked for increasing the employment allowance, with a further 0.3 billion going towards increasing an additional employment allowance for single parents.

According to the public broadcaster DR, the expectation was that this would increase the standard employment  allowance to 12.75 percent up to a maximum rebate of 53,600 kroner. 

How might this be further increased, according to Børsen? 

According to a report in the Børsen newspaper, the government now plans to set aside a further 1.75 billion kroner for tax reforms, of which nearly half — about 800 million kroner — will go towards a further increase to the employment allowance. 

The Danish Chamber of Commerce earlier this month released an analysis in which it argued that by raising removing all limits on the rebate for single parents and raising the maximum rebate for everone else by 20,300 kroner, the government could increase the labour supply by 4,850 people, more than double the 1,500 envisaged in the government agreement. 

According to the Børsen, the government estimates that its new extended allowance will increase the labour supply by 5,150 people.  

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